cost of capital
Definition
The opportunity cost of an investment; that is, the rate of return that a company would otherwise be able to earn at the same risk level as the investment that has been selected. For example, when an investor purchases stock in a company, he/she expects to see a return on that investment. Since the individual expects to get back more than his/her initial investment, the cost of capital is equal to this return that the investor receives, or the money that the company misses out on by selling its stock.
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Related Terms
capital rationing, hurdle rate, economic value added
'cost of capital
' appears in the definitions of these terms on BusinessDictionary.comlaw of proportions, Modiglani-Miller hypothesis, present value (PV), return on investment (ROI), terminal value, and 
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